Photo: Scarabeo 9 rig; Source: Saipem

Impairments in offshore drilling drag Saipem into the red

Italian oilfield contractor Saipem sank into the red in the first quarter of the year dragged down by impairments in the Offshore Drilling division.

According to its report on Thursday, Saipem’s revenues in the first quarter of 2020 totalled €2.17 billion ($2.34Bn), a 0.7 per cent increase compared to €2.16 billion ($2.22Bn) in the first quarter of 2019.

Volume increases recorded in the Onshore Engineering & Construction division were offset by lower volumes recorded in the Offshore Engineering & Construction division, the company explained.

Further, Saipem booked a net loss of €269 million ($289.8 million) in 1Q 2020 compared to a profit of €21 million ($22.6 million) in the first quarter of 2019.

The company explained that its first quarter 2020 results were impacted by write-downs of tangible assets in the Offshore Drilling division of €260 million ($280.1 million), deriving almost entirely from the impairment test.

Saipem has identified cost reductions, which are underway on many fronts.

The company rephased capital expenditure with a reduction of 20-25% compared to the previous 2020 guidance, which was withdrawn on 15 April 2020, of around €600 million ($646.3 million).

The company’s backlog at the end of March 2020 totalled €23 billion ($24.8Bn), of which 68% is not linked to oil, following the record acquisitions in 2019.

The worsening of the economic and financial crisis in the wake of the Covid-19 emergency has caused far-reaching uncertainty and a consequent dramatic and widespread drop in the demand for services which, along with volatile commodity prices, particularly of oil, are leading to a revision of future investment plans.

However, Saipem said that despite these conditions, the operating results for the quarter are robust, thanks to the strengthening of financial position in recent years, the repositioning of the business towards energy transition, and the size and diversification of its backlog.